Types of Restrictive Covenants Available to Protect Your Organization - American Society of Employers - Michael Burns

Types of Restrictive Covenants Available to Protect Your Organization

Employers are faced with many concerns over the acts of employees and former employees that conflict with employers’ best interests. From starting a competing enterprise to stealing customers or clients, employers can address most of these situations with a good employment contract.  The following outlines the various types of restrictive covenants employers can put in place to address these concerns.

Confidentiality/Non-Disclosure - A non-disclosure agreement (NDA), also known as a confidentiality agreement (CA), confidential disclosure agreement (CDA), hush agreement, proprietary information agreement (PIA), or secrecy agreement (SA), is a legal contract between at least two parties.  It outlines confidential material, knowledge, or information that the parties wish to share with one another for certain purposes, but wish to restrict access to or by third parties. It is a contract through which the parties agree not to disclose information covered by the agreement. An NDA creates a confidential relationship between the parties to protect any type of confidential and proprietary information or trade secrets. As such, an NDA protects non-public business information. Like all contracts, they cannot be enforced if the contracted activities are felonies.

Non-solicitation - A non-solicitation agreement restricts an individual (usually a former employee) from soliciting either (a) employees or (b) customers of a business after leaving the organization.

Non-compete - A non-compete clause (often NCC), or covenant not to compete (CNC), is a clause under which one party (usually an employee) agrees not to enter into or start a similar profession or trade in competition against another party (usually the employer). These agreements must be reasonable as to length time and geography to hold up in court.

Non-disparagement - Practical Law refers to this as an agreement or promise restricting an employee or employer from making disparaging remarks about one another. Non-disparagement provisions typically restrict what an employee can or cannot say about the employer following a separation of employment.

A general non-disparagement clause provides that the "Employee agrees that she will not disparage the Company or any of its officers, directors, or employees." Some employers also include language that covers disparaging communications made or transmitted on the internet or social media sites. There is no universal definition for disparagement. 

 

No-hire – Also sometimes referred to as “no-switching” agreement are contracts between or among employers not to hire each other’s employees. 

No-poaching – A no-poaching agreement is different from a no-hire but similar.  No-poaching agreements prevent the solicitation of another employers’ employees, but does not prevent their hire, so long as there was no solicitation. 

Both the No-hire and No-poaching agreements are being challenged as illegal under Anti-trust law by the U.S. Department of Justice.

The above definitions outline the most common types of restrictive covenants employers used to protect against employee’s unduly taking advantage of their position with the company. Employers are advised to speak with their legal counsel to properly implement such terms and agreements with their employees.

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